On Jan 24, we upgraded our long-term recommendation on diversified electronics manufacturer Amphenol Corporation (APH) from Neutral to Outperform, encouraged by its strong fourth quarter 2013 results and bullish guidance. A balanced organic and inorganic growth model, a lean and flexible cost structure, and an agile and entrepreneurial management team are some of the catalysts driving the stock.
Why the Upgrade?
Amphenol reported phenomenal fourth quarter 2013 results with record revenues of $1,245.7 million and all-time high recurring earnings of $1.05 per share. Despite the uncertainties prevailing in the global economy, Amphenol projected revenues between $5.0 billion and $5.12 billion for full year 2014. Recurring earnings per share for 2014 are pegged in a band of $4.15 to $4.27. Both revenue and recurring earnings guidance represent a healthy 8%–11% year-over-year growth.
Amphenol’s top-line growth is benefiting from improved end-market demand, new product rollouts and market share gains. Demand continues to be strong in Aerospace, Industrial and Broadband Communications. The company is also boosting its Information Technology and Data Communication segment with various product innovations. The diversification in end markets with a consistent focus on technology innovation and customer support through all phases of the economic cycle further enables the company to post strong results. A sustained drive for geographic and market expansion has enabled Amphenol to reach out to new customers and offer new applications.
Over the years, Amphenol has also witnessed a significant inorganic growth. During the fourth quarter of 2013, Amphenol acquired four companies for a sum of $455 million, including the Advanced Sensors business of General Electric Company (GE) for approximately $318 million. The Advanced Sensors unit is a supplier of highly engineered sensors and sensor-based instruments, and complements Amphenol’s core interconnects offering. The company is optimistic on these purchases, which it believes will create significant shareholder value going forward. In order to fuel further growth, Amphenol aims to acquire on a global basis in the high-growth segments that have complementary capabilities from a product, customer and/or geographic standpoint. We remain impressed by the company’s activity on the acquisition front and its integration skills.
Other Stocks to Consider
Amphenol currently has a Zacks Rank #2 (Buy). Some other players in the industry worth reckoning include IEC Electronics Corp. (IEC) and TE Connectivity Ltd. (TEL), both of which carry a comparable Zacks Rank #2 (Buy).